On 27th October the European Commission
published a study on consumers’ decision making in insurance
services. Insurance services are particularly important due to the size of the
market (with non-life premiums rising to € 343bn in 2015, according to Insurance Europe) as well as for ensuring financial stability.
The study focused on non-life insurance products purchased
domestically and cross-border, with cross-border purchases being key for the
internal market. The methodology of the study combined a systematic literature
review, market data collection and stakeholder interviews along with
behavioural experiments both online and in the laboratory. The use of behavioural experiments shows the increasing
influence and status of behavioural economics in EU policy making, as the
results of the study are meant to inform the European Commission’s Consumer Financial Services Action Plan.
The study produced some interesting findings. For example it highlighted that
consumers are more likely to engage with the information provided when it is
presented in a concise, salient and user-friendly way. However, the real
challenge lies in pointing out exactly the strategies that would make the
presentation of the info user-friendly, and the study provides some insights on
that. For example, separating sections using boxes and presenting text in two
columns, using icons to indicate the subject of each section, and using traffic
light coloured ticks as bullet points to indicate risks covered and not covered.
Weight is placed on national authorities frequently monitoring the provision of
information and harmonising the rules on provision of information where
possible. Price comparison websites, another informational aspect, can be
helpful for consumers but the study raised concerns as to their impartiality
and independence.
Another key finding of the study is the negative effect of
pressure in the decision making of consumers, with pressure selling being
particularly prevalent in car rental and add-on insurance. Pressure selling
makes consumers make sub-optimal decisions or buy products they do not need.
Beyond improving enforcement, what is suggested could help with pressure
selling is better information, especially underlining the existence of alternatives
and presenting the product in a balanced way. Timing is key for addressing
pressure, as well as for processing information. Allowing consumers time to
reflect on their decisions and to modify them at a later date can prove
to be helpful, according to the results of the study. However, there is the
issue of how much consumers make use of such measures and what can be done for
addressing pressure selling ex ante.
As most behavioural studies, this one also points out that
consumers tend to be passive, they prefer the familiar and do not devote
sufficient time and effort in comparing alternatives in the market. Consumers
have a low awareness and understanding of contract terms. Behavioural biases
play a role in consumers buying excess that is too low for their needs or
choosing not to buy insurance at all. The image of the consumer painted in this
study is at odds with the that of the average consumer as used in CJEU case
law, a consumer who is expected to be ‘reasonably well-informed, observant and
circumspect’.
In relation to cross-border shopping for non-life insurance
the study found that although there is some interest for it, there are barriers
preventing consumers from cross-border purchases, including low awareness of
the possibility for cross-border purchases, language barriers and the
complexity of the market, as well as regulatory differences and concern over
problem solving. Harmonisation is key for promoting cross border purchases and
it is one of the suggestions made, especially for harmonising definitions and
contract formats.
Though the study itself calls for further research and
collection of more data, it is a welcome systematic effort to study the
European insurance market with robust methodology and concrete suggestions. It
remains to be seen how much it will influence EU policy when it comes to taking
concrete measures.
